Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition,
pictured on the right, pages 522 to 535. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
Pennants are the workhorses of the day trader. They perform an invaluable service by marking the
midway point in a move. However, if a pennant is not accompanied by a flagpole, then it's not a pennant. Also, performance depends on a strong price trend leading to the pennant.
Important Bull Market Results* for Pennants
Overall performance rank for up/down breakouts (1 is best): Not applicable
Break even failure rate for up/down breakouts: 2%; 4%
Average rise/decline: 25%; 19%
Throwback/pullback rate: 47%; 31%
Percentage meeting price target for up/down breakouts: 60%; 51%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
* The performance results
for pennants are based on the short-term price swing, not the change from the
breakout to the ultimate high or low as in most
other chart patterns.
Pennant Identification Guidelines
|Price trend||Can be any direction leading to the chart pattern.|
|Shape||Looks like a short symmetrical triangle.|
|Trendlines||Prices move between two converging trendlines.|
|3 weeks||Pennants are short, less than 3 weeks long. Patterns longer than that are symmetrical triangles, rising or falling wedges.|
|Flagpole||The flagpole which leads to the pennant should be unusually steep and last several days.|
|Volume trend||Downward trend 88% of the time.|
|Breakout||Upward 61% of the time.|
Pennant Trading Tips
|Measure rule||Compute the height from the start of the price swing
(point A in the measure rule figure to the right) to
end of the price swing (B) and then multiply it by the
above “percentage meeting price target.” Add it (upward breakouts) to
the bottom of the pennant (C) or subtract it (downward
breakouts) from the top of the pennant (C) to get the
|Half staff||The average move from the trend start to the top of the
pennant is 27% in 14 days. The move from the pennant low to the trend end is 25%
and takes 23 days. Thus, the pennant appears nearly midway in a price move. The
half staff figure to the right shows an example, with A equal to B.|
|Pennant tilt||Performance suffers when the pennant
slopes in the direction of the prevailing price trend. The Pennant Tilt figure to
the right shows an example of price tilting upward in a rising price trend.|
|Flat base||If the pennant appears above (upward breakouts) or below (downward breakouts) a flat base then expect the move to be a large one.|
|Tight pennants||A tight pennant performs better than a loose one. A loose
pennant is one in which price meanders, pokes outside the trendline boundary,
contains white space, or looks jagged. The Tight v. Loose figure to the right shows
|Yearly low||Pennants perform best within a third
of the yearly low regardless of the breakout direction.|
|Throwbacks and pullbacks||Throwbacks and pullbacks hurt post breakout
The Measure Rule
Tight v. Loose
The above figure shows an example of a pennant chart pattern. The flagpole begins at point
A and completes at B. Following that, the pennant appears from
B to C, bounded by two converging trendlines then the decline
resumes and bottoms at D.
-- Thomas Bulkowski
Other Pennant Examples
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Hit any user to continue.